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FAIR VALUE MEASUREMENTS
 3 Months Ended
Mar. 31, 2023
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS
The accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
•Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of such assets or liabilities do not entail a significant degree of judgment.
•Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
•Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The following table presents assets and liabilities measured at fair value on a recurring basis using the above input categories:
March 31, 2023December 31, 2022
(In thousands)
Level 1Level 2Level 3Level 1Level 2Level 3
Assets:
Cash and cash equivalents:
Money market funds$120,657 $— $— $165,407 $— $— 
Commercial paper— 1,522 — — 50,764 — 
Corporate notes and bonds— 2,000 — — — — 
U.S. Treasuries— 16,395 — — 4,094 — 
Marketable securities:
Certificates of deposit— 50,639 — — 31,757 — 
Commercial paper— 125,947 — — 97,907 — 
Corporate notes and bonds— 290,394 — — 165,576 — 
U.S. Treasuries— 332,262 — — 297,131 — 
U.S. Government agency securities— 693,110 — — 547,228 — 
Other assets
Investments in debt securities— — 58,521 — — 56,777 
Total assets measured at fair value$120,657 $1,512,269 $58,521 $165,407 $1,194,457 $56,777 
Liabilities:
Warranty obligations
Current$— $— $29,490 $— $— $30,740 
Non-current— — 90,018 — — 75,749 
Total warranty obligations measured at fair value— — 119,508 — — 106,489 
Total liabilities measured at fair value$— $— $119,508 $— $— $106,489 
Notes due 2028, Notes due 2026 and Notes due 2025
The Company carries the Notes due 2028 and Notes due 2026 at face value less issuance costs on its condensed consolidated balance sheets. The Company carries the Notes due 2025 at face value less unamortized discount and issuance costs on its condensed consolidated balance sheets. As of March 31, 2023, the fair value of the Notes due 2028, Notes due 2026 and Notes due 2025 was $596.1 million, $613.0 million and $261.5 million, respectively. The fair value as of March 31, 2023 was determined based on the closing trading price per $100 principal amount as of the last day of trading for the period. The Company considers the fair value of the Notes due 2028, Notes due 2026 and Notes due 2025 to be a Level 2 measurement as they are not actively traded. See Note 8, “Debt,” for additional information about the Company’s outstanding debt.
Investments in debt securities
In January 2021, the Company invested approximately $25.0 million in a privately-held company. The Company concluded the investment qualifies as an investment in a debt security, as it accrues interest and principal plus accrued interest becomes payable back to the Company at certain dates unless it is converted to equity at a pre-determined price. As the investment includes a conversion option, the Company has elected to account for this investment under the fair value option and any change in fair value of the investment is recognized in “Other income (expense), net” in the Company’s condensed consolidated statement of operations for that period. Further, the Company has concluded that the Company’s investment in a debt security is considered to be a Level 3 measurement due to the use of significant unobservable inputs in the valuation model. The fair value was determined using discounted cash flow methodology and assumptions include implied yield and change in estimated term of investment being held-to-maturity.
In September 2021, the Company invested approximately $13.0 million in secured convertible promissory notes issued by the stockholders of a privately-held company. The investment qualifies as an investment in a debt security and will accrete interest and principal plus accrued interest that becomes payable at certain dates unless it is converted to equity at a pre-determined price. As the investment includes a conversion option, the Company has elected to account for this investment under the fair value option and any change in fair value of the investment is recognized in “Other income (expense), net” in the Company’s condensed consolidated statement of operations for that period. Principal plus accrued interest receivable of the investment approximates the fair value.
In December 2022, the Company took a non-voting participating interest of approximately $15.0 million in a loan held by a privately-held company. The debt security qualifies as an investment in a debt security and interest will be payable on a monthly basis. Principal becomes repayable at a certain date when a qualified equity investment or a junior debt is raised or as long as certain applicable payment conditions are satisfied. The accreted interest is recognized in “Other income (expense), net” in the Company’s condensed consolidated statement of operations for that period. Principal plus unpaid accrued interest receivable of the investment approximates the fair value.
Investment in debt securities is recorded in “Other assets” on the accompanying condensed consolidated balance sheet as of March 31, 2023 and December 31, 2022. The changes in the balance in investments in debt securities during the period were as follows:
Three Months Ended
March 31,
20232022
(In thousands)
Balance at beginning of period$56,777 $41,042 
Fair value adjustments included in other income (expense), net1,744 (1,116)
Balance at end of period$58,521 $39,926 
Warranty obligations
Fair Value Option for Warranty Obligations Related to Products Sold Since January 1, 2014
The Company estimates the fair value of warranty obligations by calculating the warranty obligations in the same manner as for sales prior to January 1, 2014 and applying an expected present value technique to that result. The expected present value technique, an income approach, converts future amounts into a single current discounted amount. In addition to the key estimates of return rates and replacement costs, the Company used certain Level 3 inputs which are unobservable and significant to the overall fair value measurement. Such additional assumptions are based on the Company’s credit-adjusted risk-free rate (“discount rate”) and compensation comprised of a profit element and risk premium required of a market participant to assume the obligation.
The following table provides information regarding changes in nonfinancial liabilities related to the Company’s warranty obligations measured at fair value on a recurring basis using significant unobservable inputs designated as Level 3 for the periods indicated:
Three Months Ended
March 31,
20232022
(In thousands)
Balance at beginning of period$106,489 $51,007 
Accruals for warranties issued during period16,025 8,770 
Changes in estimates1,245 3,899 
Settlements(7,834)(4,056)
Increase due to accretion expense3,545 1,515 
Other38 451 
Balance at end of period$119,508 $61,586 
Quantitative and Qualitative Information about Level 3 Fair Value Measurements
As of March 31, 2023 and December 31, 2022, the significant unobservable inputs used in the fair value measurement of the Company’s liabilities designated as Level 3 were as follows, of which the monetary impact for change in discount rate is captured in “Other” in the table above:
Percent Used
(Weighted Average)
Item Measured at Fair ValueValuation TechniqueDescription of Significant Unobservable InputMarch 31,
2023		December 31,
2022
Warranty obligations for products sold since January 1, 2014Discounted cash flowsProfit element and risk premium17%16%
Credit-adjusted risk-free rate13%13%
Sensitivity of Level 3 Inputs - Warranty Obligations
Each of the significant unobservable inputs is independent of the other. The profit element and risk premium are estimated based on requirements of a third-party participant willing to assume the Company’s warranty obligations. The discount rate is determined by reference to the Company’s own credit standing at the fair value measurement date. Increasing the profit element and risk premium input by 100 basis points would result in a $0.9 million increase to the liability. Decreasing the profit element and risk premium by 100 basis points would result in a $0.9 million reduction of the liability. Increasing the discount rate by 100 basis points would result in a $5.2 million reduction of the liability. Decreasing the discount rate by 100 basis points would result in a $5.7 million increase to the liability.